Four years: Ivy Industries chief sentenced

His friends had never seen him like this. John Reid, former business president, whose scheme to prop up the hemorrhaging company nearly crushed a small local bank, shuffled into the federal courtroom in leg irons and handcuffs– as if he might suddenly abandon his contrition defense and run for the exit.

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Dressed in jail-issue navy shirt and pants, the admitted check-kiter escaped the ignominy of the black and white horizontal stripes worn by Terry Dowdell, last year's multi-million-dollar fraud perpetrator. What Reid couldn't escape was the sentence.

Before a teary crowd of friends and relatives, Reid received a sentence of just under four years from Judge Harry Michael.

The two cases offer a study in contrasts. Dowdell used highfalutin' offshore companies to sell worthless slips of paper; Reid's crime stemmed from saving jobs– including his own.

Dowdell set out to perpetrate what anyone– in hindsight, of course– could recognize as a Ponzi scheme. What Reid was buying was time.

In a desperate attempt to prop up his employer, molding-maker Ivy Industries, Reid lied about corporate finances, forged a loan document, and– in his most spectacular fraud– conspired with his chief financial officer to juggle a hot potato of worthless checks that bounced for five years from bank to bank– until one bank wised up.

Left holding the worthless potato was Albemarle First, a tiny institution forced to restate its earnings after the fraud came to light in March 2002. The bank had to raise a new round of capital to survive.

Reid's misdeeds cost four banks nearly $7 million. What makes the story rival, in the words of his lawyer, "a Shakepearian tragedy" is that nobody pocketed that money. Or bought Renoirs or $6,000 shower curtains. Or threw toga parties.

Instead, a company whose expense-account junkets consisted of van rides to trade shows and that was considered a familiar name in literally thousands of picture framing stores suddenly vanished– along with about 150 jobs.

According to records filed with the U.S. District Court, Virginia National Bank lost $1 million. Guaranty Bank lost $2 million. Southern Financial lost $500,000. The hardest-hit victim, Albemarle First, founded as a community bank in 1998, lost $2.42 million.

Because Reid confessed and cooperated from the beginning of the FBI investigation two years ago, the only issue left to argue on sentencing day, May 10, was whether to cut him a break from the sentencing guidelines.

"From the standpoint of the victim," wrote Reid's lawyer, Fran Lawrence, in a filing, "Reid's fraud was readily noticeable and certainly not 'difficult to detect.' Literally hundreds of handwritten bad checks were deposited over the years, mostly hand-delivered for bank tellers by Reid, Pinkerton, and other company employees."

Prosecutor Jean Hudson countered that Reid exploited his a special position of "trust," and Judge Harry Michael agreed with Hudson in denying the request for an exception to the guidelines.

In a last plea for mercy, Lawrence detailed several facts about Reid's other desperate– but in these cases, legal– attempts to save Ivy Industries. He cashed in his retirement account and put the $205,000 into the company, as well as $345,000 garnered from selling the building. Even after the kite was discovered, Reid took a $26,000 credit card advance to cover payroll.

One shocker Lawrence revealed in court is that during the time of the kite, employees continued to be paid– to the tune of $9 million. What Reid has yet to explain is why he didn't just tell the company's lead owners, Troost Parker and Mike Davis, that the company was hurting.

"Hubris," Lawrence told the judge. "He was a prideful chief executive officer who didn't want to have it said that he let the business fail."

Hudson fired back that Reid's annual salary of $120,000 to $140,000 quashes the notion that he didn't directly benefit from the kite. "This Robin Hood," she said, "was just a thief."

A year ago, Lawrence threw two clients– a husband and wife accused of serving alcohol to minors– on the mercy of a juvenile and domestic relations judge– who responded with an eight-year sentence. The contrition defense worked better with Judge Michael, who called Reid's post-kite actions "the most compelling evidence of accepting responsibility that this court has yet seen."

Reid and co-conspirator Bro Pinkerton voluntarily went to jail on February 11. "They could have waited until today," said Michael, who sentenced Reid to 46 months. Under federal guidelines, the term could have been about a year longer. The judge said the millions Reid will owe in restitution caused him to waive a $1 million fine.

"I am, your honor," said a choked-up Reid, "extremely sorry for my actions– and embarrassed– and humiliated. Saying that is fairly easy; living with it is more difficult."

As two rows of Reid's friends and relatives slumped into quiet sobs and sniffles, Pinkerson's sentencing began. As Reid was re-cuffed, nineteen teenagers, most wearing their shiny soccer shirts, filed into the courtroom. Pinkerton got 37 months.

<img src="/images/issue0223/news-ivy.jpg"> The machines of Ivy Industries were auctioned by Guaranty bank a year ago. The building may soon become a health club.PHOTO BY JEN FARIELLO